What is digital transformation?
Digital transformation (DX) is defined as the process of accelerating a company’s business strategy through the incorporation of digital technologies. It involves using these digital technologies to empower people, optimize processes, and automate systems in an organization to achieve step change in business performance. It typically calls for a departure from old approaches and a commitment to prioritize new digital applications.
The purpose of digital transformation is the promotion of a future-oriented strategy to maximize enterprise performance. This is done by eliminating inefficiencies and encouraging comprehensive connectivity through digital technologies such as the cloud and robotics.
What are the drivers of digital transformation?
The drivers behind digital transformation are divided into two categories: market drivers and technology drivers.
Market drivers are influential factors that motivate an organization to undertake digital transformation initiatives based on external market developments. These drivers include labor trends, commodity price volatility, and capital expenditure optimization, as well as safety, quality, and environmental requirements and the competitive advantage of speed.
Technology drivers are the technological influences that trigger a business to embrace Industry 4.0 and the digital revolution. They comprise the cloud, big data, and artificial intelligence, plus IT and OT convergence, customer expectations, and B2C technology.
What are the main phases of the digital transformation journey?
DX can be a daunting process which must be previously thought out in detail. It is structured into a framework with three main stages to serve as a roadmap of change.
The first phase is digitization. It involves organizations abandoning legacy systems or equipment and converting analog data and physical records into digital versions. Digitization deals strictly with information and is the foundation of digitalization.
Company management must not act hastily here and integrate technology purely for tech’s sake. Qualitative and quantitative data must be gathered and analyzed for risk. Leaders can then curate a relevant, organization-specific blueprint with the right digital applications.
Digitalization is phase two of the digital transformation journey. Previously digitized assets are leveraged here to increasingly automate company operations and systems. Digitalization differs from digitization in that it also adds people and processes into the mix.
The third phase of digital transformation is when sweeping changes are made to a business to unite all digitized data and digitalized systems. The goal is to introduce disruptive change to all parts of a company and spark innovation through transformative business models based on novel digital technology. In other words, management makes strategic decisions to completely restructure in-house operations and skillfully manage resources to inspire both internal and external change. Organizations are thus put in a position to become market leaders and impact their industries.
How does digital transformation benefit manufacturers?
Going digital lets manufacturing companies unlock better customer experiences. Digital marketing and data-driven or even cloud-based technologies make products and services readily available to customers online and improve B2C communication processes. They also enable companies to gather and precisely assess customer-centric data, hone their business transformation strategy, and increase profitability and productivity.
Digital transformation builds customer loyalty. Customers have many options to choose from when purchasing goods or services today. Winning them over is thus pivotal to manufacturer survival. The COVID-19 pandemic, for example, exposed the importance of technology in addressing supply chain issues and adapting to time-to-market challenges for manufacturers to keep customers satisfied and maintain a competitive edge.
Manufacturers can also foster a digital transformation culture by ramping up digital transformation initiatives. The comprehensive integration of cloud computing services into everyday manufacturing processes and operations enables the quick exchange of information. It also empowers employees to contribute their own ideas and make decisions faster. As a result, they can add value and have real influence. In turn, this improves workforce retention rates, and it drives business performance by attracting high-potential talent. Employees can also work remotely and autonomously with the aid of cloud infrastructure. A decentralized or augmented workforce helps companies address labor shortages or skills gaps.
What are the strategies for tackling digital transformation?
According to Michael Treacy and Fred Wiersema in "The Discipline of Market Leaders", three main DX methods exist for organizations to launch their business into the digital age: operational excellence, product leadership, and customer intimacy. The authors argue in favor of management only adopting one of the three DX approaches. If they do not, they are likely to achieve poor results.
Operational excellence: The aim here is to pursue a philosophy that strives towards realizing outstanding value and quality in an organization. Digital technologies facilitate high operational adaptability and maximum performance in this case.
Product leadership: Companies concentrate on extending the limits of product and service development by cultivating a culture of creativity and innovation. Customers are thus provided with cutting-edge solutions that stimulate change in their lives.
Customer intimacy: This approach does not respond to the market environment but actively focuses on catering to the specific needs of the target audiences. As such, companies gather consumer-centric insights to deliver new, higher-value solutions and thereby establish deeper ties with customers.
Making the move to go digital is a must in today’s manufacturing world and determining the path there is not always clear-cut. Whether you are taking your first steps or want to realign your current digital transformation trajectory, there are plenty of resourceful tools to guide you, such as Yokogawa’s video on digital transformation in process industries – available here:
Digital Transformation | Yokogawa Europe
Mastering Digital Transformation - Risks and Opportunities
⇒ Digital Transformation in Process Industries
⇒ A Digital Transformation Leaders' Guide to Industrial Autonomy
Digital Transformation in Process Industries | Yokogawa
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